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Warranty claims: the importance of giving notice correctly

Warranty claims: the importance of giving notice correctly

This recent High Court decision highlights the importance of following the relevant clauses of a share purchase agreement when giving notice of a warranty claim.

Background

Ipsos bought shares in companies in the Synovate Group, a worldwide market research business. The share purchase agreement included a warranty that no person who was not an employee claimed treatment as an employee.

The agreement stated that no claim would lie against the seller "… unless … the Purchaser shall have given to the Seller written notice of such Claim … (a 'Claim Notice') specifying in reasonable detail: (i) the matter which gives rise to the Claim; (ii) the nature of the Claim; and (iii) (so far as is reasonably practicable at the time of notification) the amount claimed in respect thereof (comprising the Purchaser's good faith calculation of the loss thereby alleged to have been suffered) … ".

Another clause required the buyer to notify the seller of a claim that it received from a third party which might lead to a warranty claim.

After completion, contract workers filed claims against a Brazilian subsidiary alleging they should have been treated as employees. Ipsos later issued proceedings against the seller for breach of warranty. The seller argued that the claim was barred as Ipsos had failed to give a Claim Notice as required by the agreement.

Ipsos relied on two letters which it had written to support its case that it had given a Claim Notice. The first letter notified the seller of the employment claims which the contract workers had made against the Brazilian subsidiary. Ipsos had sent this to comply with its notice obligation for third-party claims, and it expressly stated that it was not a Claim Notice. The second letter was a follow-up providing further details about these claims, including the sums involved, and gave notice of some further third-party claims. It also asked the seller to clarify its position on the third-party claims. It stated that after that Ipsos would provide a further breakdown of its losses, costs and expenses.

Ipsos argued that a reasonable person with the knowledge of the background, including the history of claims made by contract workers and the contents of the first letter, would have read the second letter as constituting a Claim Notice.

Decision

The court held that the second letter did not constitute a Claim Notice. The question was whether a reasonable recipient with knowledge of the context in which it was sent would understand it to be a Claim Notice. In this case, the second letter was very much a follow-up from the first, it did not say it was a Claim Notice, it did not make it explicit that a claim was being made and it did not specify the matter giving rise to the claim or the nature of the claim.

Comment

This case is a further example of the courts requiring strict compliance with the claim notification provisions in a share purchase agreement. It is a reminder to a party making a warranty claim that it is important to ensure that its notice complies strictly with the relevant agreement. If the agreement requires a notice to specify a matter, the notice should deal with it expressly as it is unlikely to be enough that it is possible to infer the matter. Failure to give valid notice of a claim can, as in this case, where the time period for serving a valid Claim Notice had expired, deprive a claimant of its claim and therefore has potentially serious consequences.

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